A school friend of convicted Australian terrorist Khaled Sharrouf says he does not know why there is so much controversy surrounding a picture the Islamic extremist posted on his Twitter showing his seven-year-old son holding a severed head.

Wissam Haddad added he did not think his friend would return to Australia because he was satisfied with the work he was doing over in the Middle East.

On Sunday, Sharrouf - who is believed to be fighting for terror group Islamic State (IS) - was the subject of widespread condemnation after a photo posted on social media showing his son, believed to be seven years old, gripping a severed head of a Syrian soldier surfaced in the media.

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Khaled Sharrouf's son, believed to be aged seven, had to use both hands to hoist the decapitated head up as he posed for a chilling photo in the northern Syrian city of Raqqa

A number of his friends and supporters have come out to defend Khaled Sharrouf, from Sydney

But Mr Haddad defended Sharrouf and the upbringing of his children, telling The Daily Telegraph: 'This is what every sensible Muslim wants, to bring their children up in a caliphate.'

He went on to say: 'I don't see what the big concern is getting children to hold up severed heads.'

Mr Haddad said nobody in 'their right mind' would consider that Sharrouf had plans of coming back to Australian shores.

But the school friend, who did not wish media to identify his face because he had fears for his safety, was not the only one to defend Sharrouf.

A man purporting to be notorious terrorist leader Omar al-Shishani lavished Sharrouf with praise in a radio interview earlier on Tuesday.

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The grandfather of the seven-year-old boy says he was 'devastated' when he saw the distressing image.

'I was gutted, totally gutted,' Peter Nettleton told The Australian on Monday.

He added that he felt sorry for his daughter Tara Nettleton - the Anglo-Australian wife to Mr Sharrouf and the mother of the photographed boy.

Mr Haddad also spoke on Network Ten's The Project on Monday night but only agreed to be interviewed by phone.

He said he could not confirm whether or not the photographed young boy was Mr Sharrouf's son had his eyes covered up in the photograph.

'I'm shocked by all sorts of photos that happen from around the world and not just this photo,' Mr Haddad said.

'But it's a war-zone out there so there's a whole set of rules and it's a whole different ball game.

'To be honest with all the fighting against the Muslims in the past 10 years or so, we've sort of become immune to these sort photos that we see Muslims - Sydney Muslims - in the same predicament.'

Mr Haddad revealed that he last spoke with his friend a couple of weeks ago, when Mr Sharrouf sent him a text message.

'I was just telling him that the media was asking some questions about him and if he wanted to address those issues,' Mr Haddad said.

The extremely graphic photo - seen on Twitter by Daily Mail Australia - is believed to have been taken in the northern Syrian city of Raqqa, according to The Australian.

With an uncomfortable expression on his face and clearly struggling to grip the head in his hands, the boy stands posing in front of a fence that featured the severed heads of apparent enemies of IS.

Dressed in an innocent blue T-shirt, checkered shorts, sandals and a cap - the youngster looks more as if he is dressed for a holiday tour than a warzone.

But even before he took his family on tour with him to the Middle Eastern warzone, his morals were called in to question after he pulled his children out of Rissalah College - in Sydney's south-west - without discharging his owed tuition fees as he prepared them to be alongside him as he carried out his jihad.

'He was a fanatic and always wanted his own way,' a school source told The Daily Telegraph.

Tony Abbott said photographs such as this one highlighted the 'barbaric' nature of IS, which he said was trying to establish a 'terrorist state' in Iraq.

'We see more and more evidence of just how barbaric this entity is,' he told ABC Radio.

'I believe there are more photographs in the newspapers in Australia today of the kind of hideous atrocities this group is capable of.'

Mr Abbott also stated the Australian government's willingness to join the humanitarian effort to supply aid to ten of thousands of Yazidi people and Christians trapped by ISIL in Iraq.

Defence Minister David Johnston told ABC radio he was 'revolted' by the images and said they revealed the need for the tough counter-terrorism laws the government announced last week.

Opposition Leader Bill Shorten condemned the photograph of the boy as a 'shocking, evil image' but said he was wary of using the photograph for political purposes and said Labor would be discussing the proposed changes to anti-terror legislation.

Mr Shorten said the key question that needed to be answered was: 'How on earth this guy got out of Australia on his brother's passport... It's shocking he’s gone through our passport system and go to where he’s gone,' he said.

Sharrouf (right) posted photos of himself and a boy he claimed was his son holding a decapitated head

Sharrouf also uploaded a photo of himself posing with the same soldier's head with the caption: 'What a head'.

Another photo shows Sharrouf posing with his three young sons dressed in identical camouflage fatigues, wielding machine guns.

One angry tweet, accompanied by a picture of Sharrouf and his children all dressed in military fatigues, reads: 'The more u hate this path you infidel aussie dogs the happier feel dieinrage when you cant affect men lie about women.'

He has also directly threatened Australian journalists and claimed 'Inshaallah [sic] soon in Aus', a clear sign he wishes to bring jihad back to Australia. Insha'Allah means 'God willing or if Allah wills' in Arabic.

Peter Leahy, former chief of the Australian Army, said he thought the war against Islamic terrorism might continue for 100 years.

'You see something like that and you think "poor kid"… That kid is the next generation and how many kids are being exposed to that?' he told Today.

'We really do need to be concerned about radical Islam, and can I stress I'm not talking about Islam here, I'm talking about those radicals, those terrorists, those people who subject women and children around the world to barbarity and then they put these images [online] and expose their own children to this type of thought.

'I just can't imagine what this young boy is thinking and I certainly can't imagine what his father's thinking.'

Sydney Muslim community leader Keysar Trad condemned IS and those working with them as 'a bunch of brutal thugs and murderers' and said they 'have nothing to do with Islam'.

Mr Trad told Today that Australian Muslim leaders have condemned the photographs of Sharrouf and his children as 'horrifying' and 'shocking' and said they were 'working very hard to stop the supply' of young Muslims to radical groups such as IS.

Sharrouf also uploaded a photo of him and his sons dressed in identical camouflage fatigues wielding machine guns

Sharrouf has posted numerous photos to Twitter extolling jihad

Sharrouf posted this picture claiming that Khilafah (Caliphate, or Islamic rule) would be coming to Australia soon

Daily Mail Australia has seen scores of gruesome and confronting pictures from the conflict - but the photo of Sharrouf's son brandishing a head is arguably the worst of them all.

Security agencies believe he left Australia using his brother's passport in December, and he will be arrested on terrorism-related charges if he ever returns to Australia.

His friend Mohamed Elomar, a former Australian boxer, was pictured recently grinning widely as he posed with two decapitated heads. He then appeared in a video handing out advice on how to access deadly explosives in Sydney.

In July, Sharrouf posted a picture of a child brandishing an assault rifle and issued a call-to-arms for other Australian Muslims to join Islamic State's bloody war in the Middle East as well as posting a photo on Twitter of a young child brandishing a rifle.

Political correspondent Graham Richardson said the pictures showed the conflict was 'different to anything we've seen before'.

'When you've got eight-year-olds brandishing heads of their father's enemies and doing it so proudly, you've got to realise how much the world has changed. This is a different world to the one we've ever faced,' he told Today.

'We're losing the propaganda war. There is the potential for thousands of kids in Sydney's Western suburbs, in particular, some in Melbourne as well to become radicalised to the point that these other idiots have become radicalised and then they become incredibly dangerous to us.

'I don't understand how any god hates this much.'

Mohamed Elomar, a former Australian boxer, was pictured recently grinning widely as he posed with two decapitated heads

Elomar, who is wanted by the Australian Federal Police for his activities in the Middle East

Sharrouf recently posted this picture of a child brandishing a weapon on Twitter, along with threats against Australia

Sharrouf, a former Sydney resident, is thought to be fighting with al-Qaeda off-shoot Islamic State of Iraq and the Levant

Security agencies believe he left Australia using his brother's passport in December, and he will be arrested on terrorism-related charges if he ever returns to Australia